Proposed changes to Australian Tax residency rules

Australian taxation professionals have expressed concern about changes to the tax treatment of Australian expatriates in the 2021 Australian budget agenda. In their current form, these changes are expected to bring broad changes to the tax treatment for Australians that live and work overseas, as well as any internationally based people which choose to take up overseas postings in Australia. This law is set to come into effect in July 2021, or it may be scheduled for further debate and come into effect in 2022 or later.

The Australian government is proposing a factor test, where four tests would be applied to determine whether a person is a tax resident in Australia or not . The four proposed tests are:

1. The right to reside permanently in Australia.
2. Having any "Economic Interests" in Australia.
3. Having a spouse or dependent child in Australia.
4. Spending more than 45 days per year in Australia.

It may become the case that any person which owns assets in Australia and spends more than 45 days per year is subject to Australian tax residency, meaning their global assets are subject to Australian taxation. Many Australian expatriates would also be regarded as Australian tax residents by virtue of being an Australian citizen, and owning Australian real estate or other assets.

Moving forward, both Australian expatriates and non-Australians considering Australian based work assignments or making investments into Australia will need to monitor the proposed changes to Australian law closely, and plan accordingly. People will need to be especially conscious of the 45 day test, as it may not make allowances for Covid-19 quarantine periods.

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